Master Thesis
“Each cultural background has it’s own grocery
retail format”
Student: Jihane Naji
Student Number: 5802822
Date: 5 February 2014 (Final Version) First Supervisor: Drs. A.C.J. Meulemans Second Supervisor: Prof. Dr. J.H.J.P Tettero
Preface
‘Hakuna matata’.
I never thought that I could make it this far. I never dreamed that I could make the switch to economics after gaining my degree in molecular biology. Hard work,faith, belief in yourself, vision, determination, and dedication are the keywords to achieve anything what you ever want to accomplish in life. I shall be honest that it wasn’t easy at all, especially the fear of not be able to finish on time or whether my subject is well defined to receive an excellent grade, choked me up in a way that I never expected. In the end when the going gets tough the tough kept me going.. I want to thank first of all God for giving me the strength, enlightment and power, where shall I be without thou? Also I am very grateful with the beautiful people surrounding me giving me lots of energy, laughter and happiness to continue and never stop. Especially, the perfect guidance of Drs.Ing.Toon Meulemans helped me where I am now, finished and happy. Oh yeah, I mustn’t forget that music, my soul healer, also helped me a lot to keep on writing whilst singing. During my internship for the the Netherlands Consulate General in New York someone ever told me that a wise woman will make more opportunities than she finds.. Nevertheless I say we are all inventors, each sailing out on a voyage of discovery, each guided by a private chart, of which there is no duplicate. The world is all gates, all opportunities. And if you do not hope, you will not find what is beyond your hopes…Now I have that song in my mind of the rock band ‘Journey’; don’t stop believing, hold on to the future…
In the end all things are possible for those who just believe..
Abstract
Although the dynamics in the grocery retail business has decreased, doesn’t mean that they all use the same positioning strategy. In this master thesis the preferences of a culture category to certain grocery retail formats (full service, service discount and hard discounters) by questioning which driver of Customer Equity is important for each culture category are researched. First, the Customer Equity concept of Rust, Lemon and Zeithmal (2000, p. 57) is researched followed by examination of the 5 cultural dimensions of Hofstede (2001, p. 24). In this study we used the survey strategy by sending out questionnaires via email and social media. Factor Analysis was
conducted to identify dimensions of Customer Equity and its constructs. Principal Component Analysis with subsequent rotation (Varimax) was conducted on all
constructs of the questionnaire. Constructs with a loading below 0,6 and eigenvalues below 1 were excluded from further analysis.
The results showed that there are no significant differences between the choice of a grocery retail format and a culture category. Therefore is chosen to continue this research only with the format of Albert Heijn (full service). The only two culture categories who were eligible for data analysis in this research are Dutch and
Moroccans. Each of these remaining two culture categories valued the grocery retail format Albert Heijn differently. The overall score of Customer Equity for Albert Heijn on a 5 point Likert-scale for the Dutch customers is lower (3,87) than the Moroccan customers (4,20). This means that Moroccan customers of Albert Heijn value this grocery retailer more or better than its Dutch customers. The hard part of this thesis was to link these outcomes with the dimensions of Hofstede to gain an alternative explanation. Unfortunately, we didn’t raise any questions concerning the relationship between Hofstede’s dimensions and Customer Equity; therefore it was hard to give an alternative explanation concerning the dimensions of Hofstede. This thesis presents a study on an aggregate level as well as a more practical analysis on a level of a
retailer. We get additional insights between grocery retail formats and given cultural dimensions. Overall, this study contributes to the literature in general as well as practical issues to optimize a retailer’s grocery format.
Table of contents
Chapter 1 Introduction
1.1 Introduction……… 6
1.2 Problem statement………... 8
1.3 Research Question…... 8
1.4 Structure of the thesis... 9
Chapter 2 Theoretical framework 2.1 What is Culture? ... 10
2.2 Cultural dimensions……….. 11
2.3 Hofstede’s Cultural dimensions……….. 12
2.3.1 Individualism –Collectivism……….. 13
2.3.2 Uncertainty avoidance……….. 14
2.3.3 Power distance……….. 14
2.3.4 Masculinity-femininity……… 14
2.3.5 Long-term orientation……… 14
2.3.6 Indulgence versus Restraint……… 15
2.4 Grocery retail formats classification………... 15
2.5 The 8 P’s of services marketing………. 16
2.6 Customer Equity……… 18
2.6.1 Value Equity……… 20
2.6.2 Brand Equity………... 23
2.6.3 Retention Equity……… 25
2.7 Conceptual model………. 28
Chapter 3 Research design 3.1 Grocery retail industry in the Netherlands………. 30
3.1.1 Albert Heijn (full service format)……….. 32
3.1.2 Jumbo group (service discount format)……….. 32
3.1.3 Lidl (hard discount format)………... 33
3.1.4 Aldi (hard discount format)………... 34
3.2 Research model (concept)……….. 35
3.3 Survey strategy………... 36
3.4 Instrument & Sampling………... 36
3.4.1 Sampling………...…. 37
3.4.2 Variables ...………... 38
3.5 Questionnaire structure and design………...… 38
3.6 Data analysis………... 40
Chapter 4 Results 4.1 Sample characteristics………. 41
4.2 Grocery retail choice per category………. 45
4.3 Reliability, Validity and conditions of Factor Analysis………. 48
4.4 Factor analysis………...……… 51
4.5 Differences between factors……… 57
4.6 Calculating Customer Equity Performance………... 58
Chapter 5 Conclusion
5.1 Conclusion………... 60
5.2 Discussion……….……….... 61
5.3 Limitations and Future Research………...……….. 63
References... 65
Appendix A: Survey Rust, et al., (2000)... 70
Appendix B: Survey Dwivedi et al., (2012)…... 71
Appendix C: Questionnaire……... 72
Appendix D:Reliability Analysis……….…….. 79
Appendix E: SPSS output of Factor Analysis………... 80
Appendix F: SPSS output of Descriptives………...………. 96
Appendix G: SPSS output of the Means………...108
1.1 Introduction
Shifts in consumer needs and shopping behavior, and a growing tendency for
internationalization have changed the rules of the competitive game (Ahlert, Blut and Evanschitzky, 2006; Dawson, 2000; Lewis, Turcsik and Janoff, 2001). Since more and more grocery retailers are having the same products and the price differences are small, it is interesting to see how the top grocery retailers excel from each other. Especially with local specialty stores disappearing, the number of stores and the shop square meters keep increasing. Also long opening hours, demographical change, change of format retailing (like multi-outlet retailing or multi-format retailing) and technological developments in grocery retail (like RFID, self scanning) puts enormous pressures on profitability and budgets of a grocery retailer (Rabobank; cijfers & trends supermarkten, 2013) (Bolton, Venkatesh and Detra, 2006; Kaufman, 2000). In other words it becomes more challenging for grocery retailers to keep up with the customer needs in order to attract more customers and retain current ones and above all staying in all circumstances profitable. In order to keep a piece of the pie in the market, retailers have to respond to these shifts and trends. They face the challenge of not only improving the appeal of their offer to customers but also of increasing the efficiency of their operations to preserve profitability.
In the annual GfK (Growth from Knowledge) retail report 2012 it is stated that the food retail in the Netherlands is a vital branch. The total consumer spending in the
Netherlands is € 278 billion in 2011 whereas € 55.5 billion is spend in the food sector (foodservice, grocery retailers and specialty stores) of which € 26.9 billion is spend only on grocery retailers. It is expected that the revenue growth of grocery retailing in 2013 will be approximately 2%. In the Dutch market, the grocery retailing faces
intense competition and struggle for market shares. Continues search of innovation for grocery retailers plays an important role in retaining a share in the competitive market. It’s always a big challenge for each retailer to surprise and attract more and retain current customers.
After the take-over of Super de Boer by Jumbo in 2009, Jumbo announced in November 2011 that they will take over the second largest supermarket chain in the Netherlands, ‘c1000’. However, this doesn’t mean that the c1000 stores will
disappear, but that many of them will continue by carrying the name Jumbo.
Nowadays the big players in the grocery retailing in the Netherlands are Albert Heijn 6
and other excellent domestic famous players such as c1000/Jumbo, PLUS etc. The international grocery retailers like Aldi and Lidl also join this heavy battle to get a piece of the market share (Distrifood marktaandelen, 2013).
In general the retailers can be divided among six types: the full service retailer, neighbor super, the value-for-money retailer, the service discount retailer, the brand discount and the hard discount retailers (EFMI Business School, 2011 and 2013). Although the dynamics in the grocery retail business has decreased, doesn’t mean that they all use the same positioning strategy. In this research is it interesting to study what kind of format different grocery retailers use to stand out of competition. Also interesting is to know since we are living in a multicultural society what kind of format is appealing to those with a different background. For this, essential information can be gained by using the Customer Equity concept of Rust, Lemon and Zeithmal (2000, p. 57) combined with the Hofstede’s 5 cultural dimensions (2001).
Geert Hofstede created five dimensions of cultural values and rated 53 countries on indices for each dimension, normalized to values of 0 to 100. His theory of cultural dimensions describes the effects of a society's culture on the values of its members, and how these values relate to behavior. The five dimensions of Hofstede are; individualism-collectivism, Uncertainty avoidance, Power distance, Masculinity-
femininity and the Long-term orientation. Research of Hofstede (2001) gives us insight into how other cultures work, and gives explanation of people’s attitudes towards different countries.
Customer Equity is defined as ‘the total of the discounted lifetime value of all the firm’s customers and is according to Balan (2007) directly related with the viability and future performance of the company. The Customer Equity is based upon three drivers: Value Equity, Brand Equity and Retention Equity (Rust, Lemon and Zeithmal, 2000, p. 57). Every driver of the Customer Equity has a sub driver which influences the strength of each connection. When implemented in the right way and at the right time each of these drivers can increase the overall value of Customer Equity by giving a company a road map for effective strategy.
The Customer Equity concept as well as the Hofstede framework will be further explained in the theoretical framework.
1.2 Problem statement
According to numbers of the Dutch bureau for statistics (CBS, 2013), the Netherlands has an estimated population of 16.778,806 whereas 3.494,193 persons have a foreign background. Although 21% of the Dutch population has a foreign background I
wonder whether this group differs from the autochthon group, in consumer evaluation. In other words do customers with different cultural backgrounds evaluate a certain supermarket differently? In today’s globalized business world it is important for a firm to understand the different cultures within countries. Many firms attempt to analyze their supermarkets, without first analyzing their customers. Customer Equity, like previously mentioned, is a perfect tool to evaluate the customer needs and their different cultures. That’s why research on Customer Equity has already become a hot subject in the marketing field. There are many studies conducted by marketing
scholars on Customer Equity drivers, measurement and promotion however, the research results of what the influence is of a customer with a foreign background on Customer Equity drivers are exceptional.
1.3 Research question
The research question for this thesis has been formulated as follows:
“To what extent do different population groups prefer certain grocery retail formats and how can such retailer optimize this format?”
In order to analyze the cultural background of the customer and to measure consumer evaluations in the grocery retail industry, the Customer Equity concept and the
Hofstede’s framework are applied to answer this research question. The Customer Equity concept will be hereafter analyzed and explained. It will also become clear why this concept is a good approach to answer this research question. The grocery retail formats are as mentioned before, divided in six types, however in this research only the formats of Albert Heijn, Jumbo/c1000 and Lidl/Aldi will be explored by using the Customer Equity concept by Rust et al. (2001). The EFMI Business School (2011) stated in the report “Consumenten trends 2011” that the format of Albert Heijn is a full service format, Jumbo/C1000 has a service discount format and Lidl/Aldi a hard discount format. Since Jumbo took over c1000 in 2011 the format of Jumbo will be before the end of 2013 applied to all c1000 retailers (Distrifood, 2011). The
classification of the grocery formats will be further explained in the theoretical framework (chapter 2).
In order to answer the main question a series of sub-questions will be answered: - What is Customer Equity and how can it be measured?
- How to interpret the culture dimension of Hofstede?
- What are the Hofstede’s cultural dimension scores of the participated respondents in this research?
- What are the most important attributes according to the Customer Equity analysis of different culture groups for the three grocery retail formats?
- What are the strategic positioning implications of the Customer Equity Analysis of different culture groups for the grocery retailers?
Customers of grocery retailers, living in the Netherlands, are requested to complete an online survey. This survey consists of both demographic questions about personal information (like age, schooling, cultural background, marital status etc.) as questions about customers motives for shopping at a grocery retailer with a different format. With questions concerning cultures on the one hand and Customer Equity approaches on the other hand, we investigate whether there is a significant influence on the
consumer’s choice for a certain grocery retail format.
1.4 Structure of the thesis
To accomplish the objectives of this master thesis the structure of this report is organized as follows. This chapter is the introduction to the report and the executed research. In the next chapter, the theoretical framework will be presented. In this framework the five dimensions of Hofstede (2001), grocery retail format classification, 8 P’s of service marketing and Customer Equity concept will be comprehensively discussed. Over here we also present the extensive conceptual model. Hereafter, chapter three, we describe the research design followed by explaining the Dutch grocery retail business in general but also pinpoints the grocery retailers
Jumbo/c1000, Albert Heijn, Lidl and Aldi. Also, in this chapter a final research model concept is outlined, the research method, survey development and data collection are further explained. The fourth chapter contains the analysis of the data, where the findings are comprehensively discussed, and the general findings are summarized. In the fifth chapter of this research, the conclusions, discussions and limitations are given, followed by the references.
2. Theoretical framework
In this chapter the literature that has been studied will be comprehensively discussed. First, the cultural aspect in general is explained followed by the approach of Hofstede (2001). Paragraph 2.4 is continued by the classification of the grocery retail formats. Hereafter the 8P’s of service marketing are briefly argued to make clear that this approach is not relevant for this research. In paragraph 2.6 the Customer Equity theory by Rust et al. (2000) is reviewed. After the literature review, the conceptual model will be formulated in paragraph 2.7.
2.1 What is culture?
Culture is a fuzzy concept. Although people know what it means, still there’s no one universal accepted definition. According to Olie (1995, p.128), is one of the earliest definition of culture given by Taylor (1871) as “the complex whole which includes knowledge, belief, art, morals, custom and any other capabilities and habit acquired by man as a member of society”. Olie (1995, p. 128) also stated that culture is according to the anthropologist Robert Redfield (1948) a “shared understandings made manifest in art or artifact”. Kroeber and Kluckhohn (Olie 1995, p.128) made after finding 164 different culture definitions one comprehensive definition:
“Culture consists of patterns, explicit and implicit, of and for behavior acquired and transmitted by symbols constituting the distinctive achievements of human groups, including their embodiments in artifacts; the essential core of culture consists of traditional (i.e., historically derived and selected) ideas and specially their attached values; culture systems may, on the one hand, be considered as products of action, and on the other as conditioning elements of further action.”
Matsumoto (1996) defines culture in short as the set of attitudes, values, beliefs, and behaviors shared by a group of people, but different for each individual,
communicated from one generation to the next”. In 2005 Leung, Bhagat, Buchan, Erez, and Gibson came with more or less the same definition by saying that culture is the total of “values, beliefs, norms and behavioral patterns of a national group.
However in 1991 Hofstede defined culture in general as ‘the collective programming of the mind that distinguishes the members of one group or category of people from another’ (Hofstede website, 2013). He further elaborated in his book that the mind stands for the head, heart, and hands (for thinking, feeling, and acting), with
consequences for belief, attitudes, and skills (Hofstede, 2001, p.10). What personality is to an individual is culture to a human collectivity according to Hofstede. Usually the
word ‘culture’ is reserved for societies (operationalized as nations or as ethnic or regional groups within or across nations) (Hofstede, 2001, p. 10). According to Jones & Alony (2007) culture is not something that is easily acquired, it is a slow process of growing into a society. This includes:
• learning values (dominant beliefs and attitudes), • partaking of rituals (collective activities),
• modeling against heroes (role models), and
• understanding symbols (myths, legends, dress, jargon, lingo…)
Hofstede (2010, p. 34) compares in his research cultural differences based on 70 countries. Although Hofstede is been criticize by academics, his observations and analyses provide scholars and practitioners highly valuable insights into the dynamics of cross-cultural relationships. In this research the word “culture” can be perceived as a nation or a country. For this reason ‘culture’ and ‘country/nationality’ are
interchangeable.
2.2 Cultural dimensions
What are the relevant aspects of culture and how can culture be measured? These kinds of questions have stimulated a lot of researches to find “one best way” for conceptualizing and operationalizing culture. Due to this several scholars derived different cultural frameworks which in turn stimulated the critics to discuss the shortcomings of these frameworks. Nevertheless due to these several studies it is now possible to make use of several frameworks. Thereby the researches have obtained abundant achievement in cross-cultural patterns and differences. But still there is no “one best way” to measure culture. Although each cultural framework has been widely discussed it is the researcher that selects a suitable cultural framework or creates a new conceptual cultural framework for his/her research.
As described above culture can be conceptualized at different levels. This includes the national level (Dawar and Parker, 1994).
According to Hall (1973) and Gannon (2001) a cultural dimension characterizes particular groups of people, which take on a supra-identity that constitutes the framework for each individual in the group (Pallab, Abhijit, and Kausiki, 2006).
Indentifying the components of culture has been very useful for explaining the cultural 11
differences. It makes it possible to conceptualize and measure culture as a complex, multidimensional structure rather than a simple category. Geert Hofstede created six dimensions of cultural values and rated 53 countries on indices for each dimension, normalized to values of 0 to 100.
In order to simplify the operationalization of culture and to allow at least some aspects of culture to be more easily applied, researchers suggested the use of cultural indices or individual level self reports (Wan, Hui and Tiang, 2003). These cultural indices have often been turn into cultural distance scores. The cultural distance scores measure the extent to which one country’s culture is similar to -or different from- another country’s culture (Clark and Pugh, 2001; Shenkar, 2001). In approximately 90 articles in the Proquest Online Database cultural distance scores are mentioned. From these studies 75 percent used an index that was based on Hofstede’s dimensions as
operationalized by Kogut and Singh (Ng, Lee and Soutar, 2007). The (cultural) index is according to the articles of Kogut and Singh the most popular approach to measure cultural distance (Ng et al., 2007). This shows that Hofstede is perhaps the most influential researcher in the cultural classification (Ng et al., 2007). Due to his excellent work we gained important insights in the cross cultural research. According to Social Science Citations Index Hofstede’s work is most cited by other researchers.
2.3 Hofstede’s Cultural dimensions
Geert Hofstede used 11.600 detailed interviews from over 60.000 respondents in 70 countries and found distinct cultural differences among people from different
countries. After analysis of his findings he created five dimensions of cultural values (assigned indexes on each to all nations). Subsequently he linked each dimensions with demographic, economic, geographic and political aspects of a population. The framework of Hofstede has a high level of convergence across other different cultural models (Soares, Farhangmehr and Shoham, 2007). This justifies the work of Hofstede to be usable for cross cultural research. The five dimensions of Hofstede are;
individualism-collectivism, uncertainty avoidance, power distance, masculinity-feminity and last but not least the long-term orientation. The sixth dimension ‘indulgence – restraints’ was later developed based on Bulgarian sociologist Minkov’s label (Hofstede, Hofstede and Minkov, 2010, p. 280) (see figure 2.1).
Figure 2.1: Culture dimensions of Hofstede (2001)
2.3.1 Individualism –Collectivism
The first dimension of Hofstede’s framework is individualism-collectivism. The opposite of individualism is collectivism; together they form the first dimension in the framework of Hofstede. Individualism is a society where the ties between individuals are loose. It’s a culture where everyone is expected to look after him/her-self and his/her immediate family (Hofstede, 2011). While collectivism describes “the societies in which the ties between individuals are close: it pertains to societies in which people from birth onwards are integrated into strong, cohesive in-groups, which throughout people’s lifetime continue to protect them in exchange for unquestioning loyalty” (Hofstede, 2011). This means that collective cultures think more in terms of “we” as a group. Asian cultures are good examples of a high collectivist culture, whereas the U.S. and the western European cultures are good examples of a low collectivist community or a more individualistic community.
2.3.2 Uncertainty avoidance
Uncertainty avoidance is defined as “the extent to which the members of a culture feel threatened by uncertain or unknown situations” (Hofstede, 2011). A nation with a high level of uncertainty avoidance indicates that the country has a low tolerance for uncertainty or blurriness. The culture of a high rate of uncertainty avoidance can be
Cultural
Differences
Individualism/ Collectivism Uncertainty avoidance Powerdistance orientation Long-term
Masculinity-femininity Indulgence versus Restraint 13
describes as a rule orientated society where law, rules and regulations are very important to reduce the amount of uncertainty (Hofstede, 2011). A low level ranking in uncertainty avoidance in a nation stands for a society with less concern about
uncertainty and vagueness. This kind of society has more tolerance for different opinions and is less rule-orientated, accepts easily changes and takes great risks. 2.3.3 Power distance
Hofstede defines power distance as “the extent to which the less powerful members of institutions and organizations within a country expect and accept that power is
distributed unequally” (Hofstede, 2011). A society with a high rate of power distance is a society wherein inequalities of power and wealth exist, as the less powerful
members of this society accept this way of living. The low power distance is related to a society that doesn’t tolerate the differences between citizen's power and wealth (Hofstede, 2011). Equality and opportunity for everyone is very important for this kind of society.
2.3.4 Masculinity-femininity
This dimension is defined as “societies in which social gender roles are clearly
distinct, Hofstede (Hofstede, 2011) elaborated this dimension by saying that “men are supposed to be assertive, tough, and focused on material success whereas women are supposed to be more modest, tender and concerned with the quality of life”. The contrast between masculinity and femininity depends on the nature of a society. High ranking in masculine pertain to a competitive, success- and achievement- orientated society, here the assertive and aggressive 'masculine' traits predominate (Hofstede, 2011). A low masculinity society refers to a nurturing and caring society where the feminine traits predominate.
2.3.5 Long-term orientation
In 1988 Michael Harris Bond and Hofstede developed a fifth dimension to optimize the framework for explaining the cross cultural differences. The fifth dimension, long-term orientation, refers to “the fostering of virtues oriented toward future rewards, in
particular perseverance and thrift” (Hofstede, 2001, p. 351). This dimension was formerly called Confucian dynamism due to a series of confusion like values in this dimension. However Hofstede (2001) was not satisfied with this name so he changed it into ‘long-term orientation’. A high ranking in long-term orientation means that the society focuses on future-orientated values such like respect for tradition, persistence
and thrift (Hofstede, 2001, p. 353). Such a culture expects long-term rewards as a result from today’s hard work. A low rate in long-term orientation refers to a society that focuses on the here and now or a near future situation (short- term focus). This society is past- and present– oriented. People expect a short term reward from their work; such society has a low rate in long-term orientation.
2.3.6 Indulgence versus Restraint
Indulgence stands for a society which allows relatively free gratification of natural human desires related to enjoying life and having fun for instance merrymaking with friends, spending, consumption and sex. Its opposite pole Restraint stands for a society which is more likely to believe that such gratification needs to be curbed and regulated by strict norms; where people feel less able to enjoy their lives. Indulgent cultures will tend to focus more on individual happiness and well being, leisure time is more important and there is greater freedom and personal control (Hofstede, Hofstede and Minkov, 2010, p. 280). In contrary to restrained cultures where positive emotions are less freely expressed and happiness, freedom and leisure are not given (Hofstede et al., 2010, p. 296).
2.4 Grocery retail formats classification
Two decades ago consumers had a relatively limited choice of stores for their major weekly grocery-shopping trip. This has changed dramatically. Nowadays consumers have the ability to choose from a large variety of retail formats (Ahlert et al., 2006). The concept of ‘retail format’ can be interpreted in many different ways. However there are two broad categories of format classifications described in current literature. The first category of classification separates EDLP (Every Day Low Price) from Hi-Lo (High-Low) formats, and is primarily based on differences in pricing strategies (Bell and Lattin 1998). The second category of classification is that the store outlets can be classified in different formats according to (size and – related to this – assortment), service and accessibility, resulting in format such as convenience stores,
supermarkets and hypermarkets (Haans, 2007, p. 2). Since this master thesis
concerns only the grocery retail industry in the Netherlands, the focus will be on these three format classifications to distinguish each retailer.
There are limited studies about the grocery retail formats in the Netherlands. However in this master thesis the latest research of classification of the formats will be used. According to the latest study of EFMI; Consumententrends 2011, there are six kinds of
grocery retail formats in the Netherlands which are: the full service retailer, neighbor super, the value-for-money retailer, the service discount retailer, the brand discount and the hard discount retailers.
Table 2.1: classification of the grocery retail formats in the Netherlands
In table 2.1 are the formats of grocery retailers displayed. The format of Albert Heijn is a full service while Aldi and Lidl have the same hard discount format. Since Jumbo took over c1000 grocery chain in 2011, and announced that all c1000 stores will not disappear but will only carry the Jumbo format, the c1000 format classified the same as Jumbo namely service discount. Before Jumbo took over c1000, the c1000 retailer had a value for money format. So hereafter the grocery retail format of Jumbo will also include the retailer c1000. This means when the Jumbo format is mentioned in this thesis, c1000 grocery retailer is also included.
2.5 The 8 P’s of services marketing
Since services are not tangible and completely different from products, is it necessary to market a service or a product in a different way. This changes the classical 4 Ps structure of the Marketing Mix. This marketing mix is modified to the 8 Ps for services marketing. The provided services can range from hospitality services by restaurants, to financial services by the banks, to technology services by the IT-company or even a
Format type Description Retailer
Full-service High service with above average pricing
Albert Heijn, Plus
Neighbor super Fairly service oriented, in the neighborhood, with above average pricing
Coop, Golff and Spar
Value-for-money Average service with an average pricing
c1000*, Dekamarkt, EMTÉ Jan Linders, Sanders, MCD, Poiesz and Vomar Voordeelmarkt Service discount Above average service and an
attractive pricing
Deen, Hoogvliet, Jumbo and Supercoop
Brand discount Average service with an attractive pricing
Boni, Digros, Dirk van den Broek, Bas van der Heijden en Nettorama Hard discount Low service and low pricing Aldi en Lidl
blog where an author provides a service (information presentation, interesting reading etc.) to his audience (Kar, 2011). It is for a retailer important to follow the marketing mix in order to deploy their marketing strategy as effectively as possible to fulfill the consumers’ need and optimize the overall profitability. Thereby it’s important for a retailer to focus on the top-line by improving sales and on the bottom-line by lowering over-all cost of delivering services (Kar, 2011).
The 8 P’s of marketing mix comprises of Product, Price, Place & Time, Promotion & Education, People, Process, Physical Environment and Productivity & Quality (see figure 2.2). These elements of the marketing mix will be hereafter briefly described (Lovelock and Wirtz, 2007, pp. 22-23).
Product: The core and periphery service elements at the centre of the company's marketing strategy. Product may be tangible (goods) or intangible (services).
Price: Includes the pricing strategy of the company for its products. This also has a lot of impact on the service buyer’s satisfaction level.
Place & Time: delivering product elements to customers can be done physically and/or electronically, depending upon the service. Speed and convenience are essential to the customer and are important value-adds.
Promotion & Education: this speaks for itself, but the marketer must make sure communications not only provide information, but also persuade the customer of the service's relevance to the customer's particular 'problem'.
People: front-line staff will have a direct impact on perceptions. Processes: the means by which the firm delivers product elements.
Physical Environment: the appearance of the place where the services are delivered may have a significant impact upon whether the service was satisfactory.
Productivity & Quality: improving productivity is a requisite in cost management; but quality, as defined by the customer, is essential for a service to differentiate itself from other providers.
Figure 2.2: the 8 P’s of the marketing mix
The 8 P’s of marketing mix is a great tool to measure the customer’s satisfaction for each grocery retailer. In this case it is interesting to see how each grocery retail format performs and how to optimize their marketing strategy by analyzing these 8 P’s.
Unfortunately, this approach is not suitable for this research since some grocery retailers operate in multi-formats. Most grocery retailers (for instance Lidl, Jumbo and Aldi) operate in a single format, which adhere to one dominant format, while multi-format retailers operate using several different multi-formats simultaneously. Albert Heijn is a good example of a Dutch grocery retailer that applies within the same brand multi-formats for example AH to go, Albert Heijn Web Store and AH XL. Therefore another approach is needed whereby a multi-format grocery retailer like Albert Heijn can be compared to the single format grocery retailers (Lidl, Jumbo and Aldi) without
questioning the validity of the measurement. In this case the Customer Equity concept by Rust et al. (2001) is an effective solution.
2.6 Customer Equity
In order to address the issues like - How will customers of the company react to changes in the product or service offering? How does a company manage the brand? Is the chosen formula of the company effectively? Should a company raise or cut price? What is the best way to enhance the relationships with the current customers? Where should the company focus their efforts regarding customer/product/service? – can the answers be found by focusing on Customer Equity. In 1996 (p.137-138),
Blattberg and Deighton proposed the concept of Customer Equity and their viewpoints had been widely noticed in marketing theory circle and became a hot issue (Singh, 2002). Customer Equity is defined as the total of the discounted lifetime values of all the firm’s customers (Lemon et al., 2001). Each customer’s lifetime value results from the frequency of category purchases, average quantity of purchase, and
brand-switching patterns combined with the firms’ contribution margin (Rust et al., 2000, p. 38). In other words; a change in Customer Equity is a change in the current and future customer’s lifetime value for all the customers of the industry (Rust et al., 2000, p. 39). This means that Customer Equity is critical to a firm’s long-term success.
Figure 2.3: Customer Equity framework as defined by Rust et al. (2000, p.57).
The Customer Equity framework (see figure 2.3) has been one of the first to bring together customer value management, brand management and relationship/retention management (Vogel, Evanschitzky & Ramaseshan, 2008). While Customer Equity will not be responsible for the entire value of the firm (e.g., physical assets, intellectual property, and research and development competencies), its current customers provide the most reliable source of future revenues and profits (Lemon et al., 2001). Gupta Lehman, and Stuart (2004) supported the statement of Lemon et al. (2001) that by understanding the value of customer assets to the firm, and by applying appropriate strategy, the company could finally increase the overall value of the firm, as well as the value of the shareholders. This means that the focal point for marketing strategy of the Customer Equity concept should be focusing on current customers.
The purpose of this study is to evaluate the performance of grocery retailers from the 19
customer’s perspective, by using the Customer Equity concept which is developed by Rust et al. (2001). This concept is a part of the conceptual model (see figure 2.8). Lemon, Rust and Zeithaml (2001) described the three dimension drivers of Customer Equity in detail. The three dimensions of Customer Equity are: Value Equity, Brand Equity and Retention Equity (see figure 2.3).
To determine an appropriate customer management strategy is it important to understand which of the three drivers of Customer Equity is the most critical to the development of the firm’s Customer Equity (Rust et al., 2001). It is for a company important to understand; which of the three drivers of Customer Equity is the most critical to the development of the firm’s Customer Equity; which has the greatest impact on a firm’s performance; which will give the best return on investment (ROI); and where the company should focus its marketing and management efforts (Rust et al., 2001). In figure 2.4 is a schematic overview of Customer Equity presented. In the next paragraphs the three divers of Customer Equity will be explained in detail.
Figure 2.4: Customer Equity framework and its driving forces (Rust et al., 2000 p. 64)
2.6.1 Value Equity
Value Equity is a dimension of Customer Equity resulting from the value perceptions of consumers. In other words the Value Equity is based on an objective, cognitive and rational evaluation. Customers use to evaluate the value of a product or service on the basis of a combination of quality and price, but nowadays convenience is also
assumed to be an important part of the concept of value (Rust et al. 2000, p. 74). Value Equity is defined as “the customer’s objective assessment of the utility of a brand which is based on the perceptions of what is given up for what is received” (Rust et al. 2000 p. 68). What Rust et al. (2000) tries to say is to strengthen the Value Equity, the firm has to meet or exceed customers’ needs. It is not enough to
concentrate only on the quality of the services to build Value Equity, as other drivers such as price and convenience also play a significant role. Value Equity is about the added value of a product and consists of three sub drivers which Rust et al. (2000, p. 74) described: convenience, price and quality (figure 2.5).
Figure 2.5: Sub drivers of Value Equity (Rust et al., 2000 p.74)
Convenience
The convenience driver is about the location of products or services, ease of use of a product and availability (Rust et al. 2000, p.78). For example a company can increase convenience by taking actions that help reduce the customer’s time costs, search costs, and efforts to do business with the firm (Lemon et al., 2001). Areas in which these actions can be planned are location, using convenience and availability (Rust et al., 2000, p. 78).
Price
Price in economy or business world is defined as numerical monetary value of a product or service. This element represents the aspects of ‘what is given up by the customer’ (Lemon et al. 2001). According to Rust et al. (2000, p. 77) there are several ways to compete on price, these are: (1) everyday low pricing, (2) discounts and sales and (3) payment by installments (Rust et al. 2000, p. 77). The actual price does not always correspond with the price in consumers´ minds. In this case, it is about a
reference price, which is ‘the consumer’s perceived current price of a brand. It can also be termed as an anticipated price, since it is the price a consumer expects to observe at point-of-purchase. Kotler and Keller (2006, p. 431-432) claimed that adjusting the price is much easier than other elements of the marketing mix (e.g. product features or promotion); however it is a very important, complex and difficult process.
Quality
The last driver of Value Equity, quality, is defined as ‘the totally of features and characteristics of a product or service that bear on this ability to satisfy stated or implied needs’ (Kotler & Keller 2006, p.146). Rust et al. (2000, p.76) divides quality into four components; the physical product, the service environment, the service product and service delivery. A company that focuses on quality systematically studies its performances on each of those four components. It is also necessary for a
company to understand the importance of quality and maximize this, as it is the main feature of value creation and customer satisfaction (Kotler & Keller 2006, p.147). In conclusion, each company needs to find out which of these drivers and their sub-drivers have the greatest influence to its business, and concentrate on them when building a strategy to enhance a company’s Value Equity.
Value Equity can be the most important driver of Customer Equity in the next situations (Lemon et al. 2001, p. 23):
1. Value Equity will be most critical when discernable differences exist between competing products. In commodity markets, for example, where differences are small, Value Equity is hard to build. When there are differences between
competing products, influencing customer perceptions of value will help grow the influence on the firm value.
2. Value Equity will also be very important for purchases with complex decision processes. Here the decision-making process of the customers is very intense and the trade-off of costs and benefits is very important.
3. Value Equity will be critical for most business-to-business purchases, because of the involvement of long-term commitment and partnership.
4. Value Equity matters when innovative products and services are involved. In considering the purchase of a new and innovative product or service, customers must pay considerable attention to the new components of the product and its key attributes.
2.6.2 Brand Equity
Brand Equity is the second driver of the Customer Equity framework and is one of the most studied subjects in marketing research (Rust, et al., 2000, p. 80). Important issues regarding Brand Equity are the strength of the brand name and the brand communication. Rust et al., (2000, p. 81) states that clients have perceptions of a brand that are of subjective nature and that concoct irrational feelings. As discussed before is Value Equity about customer’s objective assessment while Brand Equity is about the customer’s subjective and immaterial assessment of a brand above and beyond its value (Rust, et al., 2000, p. 81). The brand of the company plays a
significant role, as its awareness and recognition can attract new customers, and for existing clients it can work as a reminder and emotional tie to the firm (Rust, et al., 2000, p. 81). To strengthen a firm’s Brand Equity it should try to build a positive customer evaluation of the brand as this can assure constant customer purchases from this particular company rather than its rivals (Rust, et al., 2000, p. 81-84). Keller (1993) states that ‘customer-based Brand Equity occurs when the consumer is familiar with the brand and holds some favorable, strong, and unique brand associations in memory’. If the customer has a positive feelings and attitude towards the brand, it is more likely that the customer will recommend the brand to others, who will also try it. According to Rust et al. (2000, p.84), the role of the brand in building Customer Equity is threefold; (1) to built a reputation and attract customers (2) to built emotional
relations with customers and (3) to remind customers to repurchase the product. Rust et al. (2000) specify three sub drivers of the Brand Equity driver which are: customer brand awareness, customer brand attitude and customer perception of brand ethics (Rust et al., 2000, p. 84). Each of these drivers also has separate sub drivers which can be used differently by every company (see figure 2.6).
Figure 2.6: Sub drivers of Brand Equity (adapted from Rust et al., 2000 p. 84)
Customer brand awareness
Brand awareness is defined as ‘consumers’ ability to identify the brand under different conditions, as reflected by their brand recognition or recall performance’ (Kotler and Keller 2006, p. 288). The customer has to be aware of the brand before it is possible for a company to build Customer Equity. In order to recognize a brand it is important that consumers correctly discriminate the brand as having been heard or seen before, and brand recall requires that consumers correctly generate the brand from memory. Brand awareness covers all the tools a company has and all the actions that a company can undertake to increase the brand knowledge by the consumer, mostly companies make use of marketing communications to achieve this (Lemon et al., 2001). According to Rust et al. (2000, p. 88), there are three drivers behind brand awareness; the communication mix, the media and the message. The communication mix encompasses communication tools used by the company. Before choosing a specific media channel it is important to know in what degree the target market pays attention to mass advertising whereas the message are conveyed to the target audience and if this message aligns with the complete communication strategy of the company. To decide which medium is most beneficial for a company, it is important to know what kind of media the projected customers give their attention to (Rust et al., 2000, p. 88).
Customer brand attitude
Brand attitude refers to the emotional attachment of the brand/company with the consumer. The better the connections between a brand and a consumer, the more loyal a consumer will be towards this brand. In other words, Brand Equity could be built by linking the company’s brand to other meaningful information in a consumers’ memory (Kotler and Keller 2006, p. 287). To achieve this goals there could be taken action on the following specific driving sub-forces (Rust et al., 2000, p. 89); the communication message, special event, brand extensions, brand partners, product positioning and celebrity endorsements. According to Rust et al. (2001, p. 93) the brand associations should be strong, positive and uniquely tied to the brand. Customer perception of brand ethics
Brand ethics can also be of importance for a company. Clients considering doing long term business with a company want to know to what extent the values of a company concur with their own values (Rust et al. 2000, p. 91). Thus, it is important for a
company to build on the ethics concerns of the companies’ clients. Of course these ethics can differ per company. Before doing business with the company, the customer will take into account if his/her values are consistent with the brand or firm values. So every company has to understand the ethics of its customers’ as those ethics and beliefs relate to its brand when determining the best way to increase Brand Equity (Rust et al. 2000, p. 91). Brand ethics include such sub drivers as community event sponsorship and a strong record of giving to the community, development and maintenance of a privacy policy for use of customer information, clean environment record, ethical hiring and work practices, as well as strong product or service
guarantees (Rust et al. 2000, pp. 92-93). Also trust is an important element of this sub driver. A company gains trust by being clear about privacy policy of client details (Rust, et al., 2000, p. 92) and with that lowers the risk of consumers in using their product.
In summary, companies have to identify the most important drivers and sub-drivers of Brand Equity and implement strategies to improve customer perceptions towards the company, hereby a company can build and strengthen their Brand Equity.
Brand Equity is especially important in the next situations (Lemon et al. 2001, p. 23): 1. Purchases with low involvement and easy decision processes.
2. When the product is also visible for other individuals.
3. When it is hard to judge the quality of the product or service before consumption.
2.6.3 Retention Equity
Retention Equity goes beyond the subjective and objective evaluation of a customer concerning a brand. Retention Equity refers to the customer’s tendency to stick with the brand. In other words, this component equals that amount of discounted
(gu)es(s)timated cash flow of a consumer, initiated by the strength of the relationship between customers and the company (Rust et al., 2000 p. 95). Retention Equity focuses on items such as: last purchase, benefit to client and company by existing relationship, result of breaking the relationship (Rust et al., 2000 p. 95). According to Duncan and Moriarty (1998), increased retention is the primary benefit of focusing on relationships. Thus, it is important for a company to have a good relation with their customers and keep them away from competition. There are several strategies (or
actions) which are identified by Rust et al. (2000, pp. 99-100) whereby a company can retain its customers: loyalty programs, special recognition programs, affinity programs, community building programs and knowledge building programs (see also in figure 2.7). The degree of effectiveness of these five sub drivers is dependent on the nature of the product or service, the purchasing frequency and the motivations of the
customers (Rust et al. 2000, p.100).
Figure 2.7: Sub drivers of Retention Equity (Rust et al. 2000 p. 100)
Loyalty programs
According to Kotler and Keller (2006, p. 143), customer loyalty is described as ‘a deeply held commitment to re-buy or re-patronize a preferred product or service in the future despite situational influences and marketing efforts having the potential to cause switching behavior’. Lemon et al. (2001) states that loyalty programs include which reward customers with tangible benefits, for specific behaviors. In this case a customer gets a discount for doing repeating purchases. Loyal customers are for sure valuable to every company, as they guarantee future revenues. Thus it is important for companies to make customers loyal, by providing them superior value prepositions through various loyalty programs like: loyalty cards, bonus points, free gifts, financial rewards, coupons and so forth (Rust et al. 2000, p. 101). The effectiveness of those loyalty programs depends on the market in which the programs are delivered. If the
switching costs are high then loyalty programs could increase Retention Equity. However loyalty programs will be less effective in markets where switching costs are low, this means that a costumer can switch easy to another company (Rust et al. 2000, p. 101).
Special recognition and treatment
Special recognition and treatment refers to actions that recognize customers for specific behavior with intangible benefits (Rust et al. 2000, p. 102). An example of this is the special treatment of the best customers of airline companies, which gain the advantage of early boarding or other special treatments like birthday or Christmas cards, ‘golden client’, ‘best customer’ or VIP cards (Rust et al., 2000, p.102). Affinity programs
Affinity programs seek to create strong emotional connections with customers by linking the customer's relationship with the companies to other important aspects of the customer's life (Rust et al. 2000, p. 103). Affinity programs try to incorporate the product or service of the company in a strong interest or emotional ties of the
customer (Rust et al., 2000, p. 103). An example of affinity and emotional connection programs are music, associated lifestyle or personality.
Community-building programs
To create customer community the firm has to build the personality of the brand or company itself, and convince customers that they will benefit from being part of this community (Rust et al. 2000, p.105). A creation of a customer community exists when the company is able to convince the customers that they benefit from the contact with other customers of the company (Rust et al., 2000, p. 105).
Knowledge-building programs
Knowledge-building programs ‘increase relationship equity by creating structural bonds between the customer and the firm, making the customer less willing to recreate a relationship with an alternative provider’ (Rust et al. 2000, p. 107). Thus these programs are not only important to company, but to customers as well, as this builds learning relationships between them. A good example of where the knowledge building program is visible is the website Amazon.com. The information provided through serving-behavior and ‘click-behavior’, gives a company enough information to build a relationship with the customer, which would in the end lead to less customers
who are switching (Rust et al., 2000, p. 107).
To sum up, in order to be successful every company has to strengthen these aspects of relationships that are valued and appreciated by the customer. According to
Szmigin and Bourne (1998) customer retention has a positive effect on the profitability of a company. Moreover, the positive effect will be mostly seen in service orientated companies where building retention is the key instrument to distinguish themselves from competitors and in most cases it is their main tool of driving Customer Equity. Retention Equity will be the most important aspect of Customer Equity in the next specific situations (Lemon et al., 2001, p. 24);
1. When the benefits, perceived by the customer, of the loyalty programs are greater than the ‘cash value’ of the benefits received.
2. Retention Equity will be the key when the community associated with the product or service is as important as the product or service itself. Some products are
continually purchased by customers to maintain ‘membership’ in the community, 3. When a company has the opportunity to create learning relationships with
customers, Retention Equity will be very important.
2.7 Conceptual model
In order to answer the research question of this thesis in general terms, combining the theoretical overviews we described till now, we can use the following conceptual model (see figure 2.8). In this model we assume a direct relation between cultural groups and Customer Equity. In other words; the value of Customer Equity could vary along different cultural groups given a certain grocery retail format. In my opinion this grocery retail format (to interpret as a function of a relationship between the 8 P’s) can be seen as a moderator.
The model is rather complex, because it contains a lot of variables to relate with each other. That’s why we explore a more simplified model (less variables) in the next chapters (see paragraph 3.2).
Figure 2.8: Conceptual model of relation between cultural groups and Customer Equity
3. Research design
In the first paragraph of this chapter we describe the grocery retail industry in general. Also the grocery retail formats of Aldi, Lidl, Albert Heijn and Jumbo are explained. In paragraph 3.2 the research model concept will be presented followed by paragraphs about the methodology, survey structure and the data analysis of the actual study.
3.1 Grocery retail industry in the Netherlands
In the Netherlands the grocery retail industry is much consolidated. Also the grocery retail density is very high. This means that there are a lot of grocery retailers settled in a small area. Over the past years the differences between grocery retailers faded away since the higher segment of the market came up with private label (cheaper) products, while the lower segment introduced products with more quality in their assortment. This caused that the market narrowed down whereby grocery retailers moved towards each other. There are approximately 4.400 grocery retailers
nationwide with an average surface area of 516m2 (Rabobank Cijfers & Trends, 2013). Although the competition within the retailers is very fierce, the amount of grocery retailers in the Netherlands is rather stable. It even slightly increases each year (Rabobank Cijfers & Trends, 2013). On average, the consumers are 9 minutes away from a grocery retailer (Stelder, 2013).
In the annual GfK (Growth from Knowledge) retail report 2012 it is stated that the grocery retailers had in total a turnover of 32,6 billion Euros in 2012; 1,1% more than in 2011. The increase of the turnover is caused by an increase (+2,3%) in the amount of visitations of consumers to the grocery retailer. However, in 2012 consumers spend on average 1,2% less money per visit to a grocery retailer than in year 2011 (22,14 euro > 21,88 euro). In spite this decrease the CBS (2013) noted, that the Dutch
grocery retailers in 2012 realized a turnover growth of 3,0%. As already said a general trend over the recent years, is the increasing demand of private labels. CBL and EFMI (2011) stated in their report that, differences between private labels and A-brands decreases as the private labels are generally cheaper, subsequently the demand increases. This aspect contributed a positive effect on the turnover of the grocery retailers.
The Dutch grocery retail industry can be marked as an oligopoly with a few dominant retailers. The current top 3 food retailers in the Netherlands are Albert Heijn, Jumbo (c1000, Jumbo and Super de Boer) and Aldi, together they have a market share of 63
percent (see table 3.1). However, the market share of the hard discounter Lidl grew in the last three years so rapidly that the difference between Aldi and Lidl is just 0,1%. Aldi has become a serious competitor since the market for hard discounters like Aldi and Lidl has decreased to 13.5 percent (EFMI, 2013). A footnote has to be made; some competitors united themselves in the so called “Superunie” (Bestedingen en Marktaandelen, 2013). This is a purchasing organization that connects 14 grocery retailers to increase their buying power and to compete against the larger grocery retailers. Together they account for 29.0% of the market. In this master thesis the leading grocery retailer formats of Albert Heijn (full service format), Jumbo group (Super de Boer + c1000) (service discount format) and Lidl & Aldi (hard discount format) are researched.
Table 3.1; Market share of grocery retailers in the Netherlands (source: Distrifood, 2013)
3.1.1 Albert Heijn (full service format)
Albert Heijn (part of the Royal Ahold concern) is the largest and most famous grocery retailer in the Netherlands. During the 125 years development, Albert Heijn made several but crucial movements. Albert Heijn was founded in 1887 in the Dutch village Oostzaan. Nowadays it has 936 (of which more than 227 franchise) stores with 8.000- 22.000 products in the Netherlands (Albert Heijn, 2013). The market share of Albert Heijn was 33,7% in 2012 (Distrifood, 2013). The stores are full service grocery retail formats known for their focus on quality stores and products. This focus on superior products is part of the reason that Albert Heijn is regarded as one of the more expensive supermarkets (Wikipedia Albert Heijn, 2013). Furthermore Albert Heijn often created special and different format concepts compared with other grocery retailers- like in 1952, Albert Heijn opened the first self-service supermarket in
Schiedam. The customer could now select and pick their own goods by walking along the shelves with a shopping basket. Albert Heijn saved in this way costs and provided better shopping environment.
In 1999, “Albert Heijn to go” was introduced for customers to eat or drink at work or on the way. It was an easy store with healthy and quick solutions and mostly settled at the central stations or in the centers of the cities. Two years later in 2001, Albert Heijn web store was created.
In October 2003 Albert Heijn started a price war because it was losing market share and lowered the prices of more than 1000 products, selling goods below the cost (GfK retail rapport, 2012). Other grocery retailers reacted by also lowering their prices to sustain their customer base. Albert Heijn reacted again by lowering its prices even more to maintain their customers (Distrifood, 2009). Because of this behavior many small grocery retailers could not keep up with the price war and had to end their businesses.
The private label assortment of Albert Heijn consists of 4.600 products (AH Puur & Eerlijk, AH Excellent, AH Huismerk and Euroshopper). After all, regarding this thesis we can conclude that Albert Heijn has in total four formats in the Netherlands namely; the regular Albert Heijn, Albert Heijn XL, Albert Heijn to go and Albert Heijn Web Store.
3.1.2 Jumbo group (service discount format)
Jumbo group (c1000 + Super de Boer) is a serious competitor in the grocery retail industry. Especially after the takeover of c1000 (market share 12,1%, in 2011 the
second leader in the grocery retail industry) makes Jumbo a significant player in the current market. Jumbo group had in 2012 a total market share of 21,7% (Distrifood, 2013). Like previously mentioned Jumbo announced their takeover of the c1000 stores and reformulate these stores to the Jumbo format within 5 years (Distrifood, 2013). Although the takeover is realized recently in this study the grocery retailers c1000 and Jumbo are combined by using just one format, the Jumbo format. This means that although c1000 has a Value-for-money format, the format of Jumbo a Service discount format will be used in this study.
Jumbo group is a part of the privately owned Van Eerd Group. Van Eerd was originally a grocery wholesale company, established in 1921 in Veghel. The first Jumbo grocery retail opened their doors in 1983 (Wikipedia Jumbo, 2013). The Jumbo format focuses on above average service and an attractive pricing this format is extracted from the everyday low pricing strategy. This strategy is promising consumers the lowest price without the need to wait for sale price events (Distrifood, 2013). However Jumbo made the past years some concession by adding weekly promotions in their format also known as “Jumbo deals”. Jumbo continuously changes the price of the
assortment to keep the lowest price guaranty and works with multiple price lines of certain assortments. After all, Jumbo has in total 347 stores in the Netherlands with 32.000 products. The average turnover of the Jumbo retailer alone is 3.228 million Euros (Wikipedia Jumbo, 2013). The grocery retail c1000 still exists, as the Jumbo group announced that the takeover will happen gradually without mentioning when all C1000 stores will be reformulated to the Jumbo format (Wikipedia Jumbo, 2013). In 2013 there are still 350 c1000 stores with approximately 11.000 available products, eventually these stores will disappear and be rebuild into the Jumbo format.
3.1.3 Lidl (hard discount format)
Lidl Stiftung & Co. KG is a German global discount supermarket chain, which operates over 10,000 stores across Europe (Lidl, 2013). It belongs to the holding company Schwarz Gruppe, which also owns the store chains Handelshof and hypermarket Kaufland (Wikipedia Lidl, 2013). The first Lidl grocery retailer in the Netherlands opened its hard discount store in 1997 in a place called Uden. In that same year (1997) Lidl opened 32 stores spread around the Netherlands (Lidl, 2013). Two years before opening the grocery retail store (in 1995), the headquarters of Lidl Nederland GmbH in Huizen started to plan and set-up a strategy to enter the Dutch market. Lidl Netherlands has nowadays a total of 368 grocery store locations that operate
nationwide. The average turnover of Lidl is 2.7 billion Euros (Distrifood, 2013).
The format of the grocery retailer Lidl is as mentioned before a hard discounter. This format offers quality products within the framework of low prices. Opinions about the quality of their products are divided, but generally it is accepted that their products are of a lower quality than the grocery retailers with another formats (Distrifood, 2010). Recent figures of Lidl have shown a strong growth in market share. While the market share in 2007 was 4% it rose to 7,5% in 2012 (Distrifood, 2013). Analysts forecast that this market share will grow even more since the grocery retailer c1000 will disappear. 3.1.4 Aldi (hard discount format)
Aldi Einkauf GmbH & Company, short for Albrecht Discount, is a global discount grocery retailer chain established in 1946 in Germany. The founders of this grocery retail chain are the brothers Karl and Theo Albrecht. Aldi is made up of two separate groups, Aldi Nord and Aldi Süd. Both operate independently from each other within specific areas. There are in total more than 9.235 Aldi stores worldwide. Aldi Nord is for in the regions Denmark, France, The United States, the Benelux countries, the Iberian Peninsula, and Poland. Aldi Süd is responsible for operating in the regions Ireland, the United Kingdom, Hungary, Switzerland, The United States, Australia, Austria, and Slovenia (Wikipedia, Aldi, 2013).
Aldi opened in the Netherlands its first store in 1975. In the Netherlands there are in total of 498 Aldi stores with its headquarters in Culemborg. The average turnover of Lidl is 2.5 billion Euros (Distrifood, 2010).
The format of the grocery retailer Aldi is, as mentioned before the one of hard discounter. This format focuses mainly on the cost price of their products. Since Lidl has the same format as Aldi, Lidl is seen as the direct competitor of Aldi. Behind these two discounters, there is another discount formula namely Dirk van den Broek
(Distrifood, 2010). However the format of Dirk van den Broek is a brand discount, which means that the focus is not only on attractive pricing but also on average service.
In 2012 the market share of Aldi is 7,6%. Unfortunately since the rising of Lidl in 1997 Aldi is slowly losing market share as it was in 2007 a percentage 8,9 (Distrifood, 2013).
An important reminder is that this thesis emphasizes only the grocery retailer formats of the hard discount, service discount and the full service formats.
3.2 Research model (concept)
In this section the research model is presented in figure 3.1, this model shows in detail what is searched and which drivers of Customer Equity are investigated. The first part of this model is the cultural part. This part shows that there are different kinds of cultures living in the Netherlands. Based on different cultural background of
consumers we try to investigate, if there are different preferences for a certain grocery retail format. Obviously after data collection the different culture categories in this sample will be presented. After that we investigate the relationship between
respondent’s culture category and the preference of certain grocery retail formats (the moderator).
During setting up the survey, we used a questionnaire derived from the questionnaires of Rust et al. (2000) and Dwivedi, Merrilees, Miller and Herington (2012) who did research about the Australian supermarket industry by using the Customer Equity tool, as this is tested.
We decided to do research for all three chosen grocery retail formats namely Albert Heijn (full service), Jumbo (service discount) and Aldi/Lidl (hard discount). In this case we wonder if every different culture category has its own preferences of a certain grocery retail format and which driver of Customer Equity is important for each culture category. The Customer Equity concept consists of three drivers Value, Brand and Retention (or Loyal) Equity and is a good tool to evaluate the customer needs and their different cultures. The Value driver has three sub-drivers namely; Quality, Price and Convenience. Figure 3.1 presents the simplified research model concept.
Figure 3.1: Concept of the simplified research model of this master thesis
